Work less and achieve more

How to work less and achieve more…a case study using Afinitis

Summary

Bob is the CEO of a growing and successful giftware business, with a turnover of just under £25m.

Despite working increasingly longer hours, he found that business was becoming more challenging and overall profit was gradually declining.

He was smart and had plenty of information in the form of reports and raw data, but there were conflicting opinions within the business about what to change and prioritise. In short, he was busy and struggling to get to the root of what was going on.

Working with the Afinitis Intelligence team he was able to draw upon the information he already had locked away in his various systems but view it in a way that helped him quickly understand the actions he needed to take and then track the effects of the changes in real time.

Combining the Afinitis Intelligence simplicity and excruciatingly clear insight with his own experience and that of his management team, the resulting effect on the business was astonishing.

Background

It was 2 weeks before Christmas, and Bob was feeling the pressure. He’d done no Christmas shopping and hardly seen his wife and Children since their October holiday because he was working a 60-70 hours a week. Despite all his own efforts and that of his team (who were also working long hours) the monthly accounts were showing a declining net profit and more cash was being tied up in stock. Added to that he was running out of space in the distribution centres due to the amount of stock in the Christmas lead up. He was also receiving reports that the orders were taking longer to ship and customers were starting to complain.

In short they were working harder and harder but standing still in terms of net cash and profit. Despite having reasonable systems and reporting tools it was hard for Bob to get to the real problem. He felt they were holding too much stock but the sales guys were adamant that this was necessary to avoid losing sales. Finance didn’t want to throw anything away as this would hit the current profits and anyway it might be sellable in future.

In short, as a busy CEO he just wanted to know where to start. In discussing this over dinner with a friend, Dave, an MD of a larger company who he’d been friends with for many years. Dave suggested the Afinitis meeting.

Moving Quickly from Information to Answers

Like many businesses in a similar situation, the issue that Bob was facing was that he had lots of information in the form of reports from Finance, the Sales team and Marketing but there seemed to be very few actionable answers…the one thing he truly wanted. He couldn’t see the wood for the trees.

He needed to know what actions he could take right now, to start to turn the business around.

The Afinitis Intelligence team started by taking a copy of the company’s Sage finance system backup. Using the Afinitis Intelligence software engine they then applied their in-built validations, calculations and comparisons then worked with Bob to understand what the information was really telling them, using their experience and his knowledge of both the business and the market to build a complete picture of what was going on in the business.

The emerging picture allowed them all to see some interesting underlying patterns that were not obvious from the top line figures. What really pleased Bob was that this was achieved within just a few weeks.

Here are some of the trends they uncovered in the first pass:

Customer spending patterns had subtly changed. Some of the customers had stopped buying key products but because it had happened so gradually no-one had noticed. It was only when drilling into the data, using the top 20% of movers as a starting point, that it started to become apparent what was happening.

They were holding an average of 105 days of stock, while most products were on a 7-day lead time. In fact, 25% of what they were holding hadn’t moved in 12 months. Their replenishment purchasing did not have a clear policy and the stock controllers were tending to play safe, avoiding stock-outs rather than facing the wrath of the sales agents for not fulfilling customer orders. When looking more deeply into this it became apparent that the sales team behaviour was being driven in part by their commission and bonus structure which was heavily weighted towards top line sales rather than overall profitability.

By analyzing their products and sales patterns across sales agent, customer type, channel and region they were able to identify that certain product types fared better in certain regions and others sold better through certain channels. Up to this point they were taking a fairly generic approach and making the full range available through all channels and all distribution centres. This in turn was increasing the amount of stock held.

Moving Forward with Actionable Items

Using the information now readily available on his desktop, Bob got the management team together and they worked out a 3-point plan:

Reconnect with key customers that have stopped buying – They contacted the customers that had stopped buying and found that a competitor had stepped in with an alternative product that was slightly cheaper but not as good. After re-establishing the relationships with those customers and understanding in more detail what they were buying and why they were able to put together a very attractive package of products.

Convert more of the held inventory into sellable stock (increase the stock turn) – To achieve this they focused on the following key changes:

A review of all slow moving stock to either scrap, write down to fair value and sell it to discounters or run a price campaign with existing clients to clear it.

They changed the replenishment policy which included giving the stock controllers more control over the order quantity decisions; these were now driven from sales forecasts supplied by the sales team. Stock performance measures were introduced and published, which compared availability vs forecast demand.

They redesigned the sales team bonus and commission structure to reflect performance against sales forecast and overall profitability, rather than top line revenue. The aim here was to reduce the tendency to overstock for fear of losing a sale.

Establish preferred sales channels for the different product types – Using the channel and regional sales data they now had available they were able to match their products types to the channels and regions that would be most effective. Having this new up to date information also gave them the confidence to test and measure specific product and channel combinations together with targeted marketing, to establish which combinations were most effective.

Actions into Results

Put simply, the impact on the business was profound. From these few changes alone, the company was able to increase top line revenue by 10% within the first 12 months while at the same time reducing the amount of stock held from £8m to £5m.

By reducing the stock so significantly they could re-arrange the layouts within the distribution to increase pick, pack and ship efficiency. This resulted in a reduction in the number of picking staff by 2, saving £70k per year in wages and associated costs, while also reducing shipping turnaround times from an average of 5 days to 2.

Taken together these changes directly resulted in an increase in profit of £247k within the first 12 months. Even more important was the confidence across the business to use the data to drive the decision making, rather than the more subjective and opinion based approaches they had tended to adopt in the past.

An interesting side effect was the fact that the management team became much closer. For the first time they all had the same view of the overall direction the company needed to take, with only relatively minor disagreements on the approach to get there. Working from a position of knowledge and confidence, they were now able to set themselves on a course that was both profitable and enjoyable.

Afinitis Intelligence – Combining Intuition and Insight to help great teams to achieve more than they thought possible